Decisions Have Long Shelf Lives

An idea that is not new to any of us is that successes or mistakes that we make when we are young can come back to support or hurt us.

Both big and small: perhaps it's the decision to move halfway around the world. The decision to marry a spouse. The decision to sleep in one day and hit the snooze button. All of these decisions actually have the potential to change our lives in meaningful ways. There's a beautiful and simple movie I watched many years ago about this idea, Sliding Doors, that I'd recommend for anyone who enjoys popcorn and a relaxing night at home.

Hardly a day goes by now when we don't see some publicized event of a politician or business leader apologizing for something they did a decade ago. Most recently, Justin Trudeau has faced his share of challenging press for deplorable actions he took while he was a teacher, before his political career began.

I'm not here to discuss particular actions of particular people and how we should handle those situations. That can be for another day. Aside from the innumerable political scandals over the last few weeks, there was one decision that really caught my attention — it was at the root of a much larger story.

The WeWork story, abridged

Many writers and business pundits have been quite enthused to discuss the WeWork debacle over these last two weeks. In short, WeWork planned an Initial Public Offering this year, but scrapped it due to both achieving a much lower valuation than they were hoping for and also continued revelations of corporate governance issues that involved the CEO, Adam Neumann. Neumann's self-dealings have been plentiful and in the wake of both issues, he and his wife were asked to step down from the executive ranks of the business. The plans now are to also fire about 1/3 of the global staff, divest much of the non-core assets (including the private jet) and business units (including Flatiron School, a coding bootcamp).

What I want to dive into here is one of the reasons why I believe this all happened but isn't getting as much airtime: Masa's fund structuring.

Whoa — a really uninteresting punchline. But hear me out. An article by tech journalist Ben Thompson tipped me off to this idea.

Masa (Masayoshi Son) is the CEO of Softbank, a large Japanese technology and investment company. His creation is Softbank's 'Vision Fund,' a $100 billion fund to invest in the longest-term and most audacious businesses he can find. WeWork was one of the fund's largest investments, along with Flipkart, Ping An OneConnect, Grab, AUTO1, Uber, SenseTime, and many more.

One of the Vision Fund's largest LPs is the Saudi Arabia Public Investment Fund (PIF). Some fund agreements give LPs veto rights over specific investments past a certain size threshold; the Vision Fund was one of them.

The clause that mattered

Masa had already invested billions of dollars into WeWork. He wanted to invest more, and went to PIF for the blessing his agreement required. They give him a thumbs down.

They don't believe WeWork is going to grow, or for another reason they don't want to fund this deal any more. Now Masa is in an absolute bind. He can either not invest more in it from the fund and watch the company struggle and possibly die (they are losing ~$1.7BB per year at this point), or he can invest as much as he can to help it. In this case, he chooses the second and injects $2BB into the company in January 2019 — some of this is his personal capital. This is much less than the $10BB+ he had expected to invest.

At this point, Masa doesn't even want the company to IPO, since he wants the valuation to continue to climb while the company is still private, giving him an outsized proportion of the upside. But yet he's caught now, because as PIF didn't fund the January 2019 round, it's unlikely that other companies would really want to do so either. People talk, after all. So the next best option is to take the company public. But now that the business model is proving untenable and unprofitable and Neumann's corporate governance issues are coming to light, no banks or retail investors want to touch the deal.

Bottom line: it's a mess for Masa.

The takeaway

The final result here is that Masa's investment thesis may have been the correct one. It also may not have been — we don't know. But regardless of the thesis and thoughts behind it, a simple clause in a contract will stop him from realizing the WeWork dream as an investor. This clause allows PIF to veto the deal if they want.

It's an example of a decision that was made years ago that only now is coming back to bite Masa, even though this clause probably hasn't even crossed his mind in the last few years.

A small decision like a clause in a contract could catalyze billions of dollars of value being destroyed, thousands of jobs being cut in the coming weeks, and many other ramifications we cannot even see yet.

The key takeaways from this for me were twofold:

First, and less consequential — everyone is nice and friendly until money gets involved, especially the potential of losing lots of money.

Second, and more thought-provoking — there are decisions we all make that we don't think about until they rear their ugly (or beautiful) heads years later. They are small pieces of otherwise larger decisions, often.

What are those decisions going to be and how can we reduce the chances of making them to zero? Or at the very least, reduce the chances of having those decisions negatively affect us as much as possible?

When taken to its extreme, the answer is simple: make no decisions of consequence or that could possibly be negative in the future. Never say anything contentious. Don't commit to any future course of action, agreements, or plans.

But then I imagined a world where that was the case and how dreary that must be.

So where on the scale of 'no decisions of consequence' to 'every decision possibly comes back to hurt you later on, whether it is your fault or not' should we position ourselves?

Knowing that decisions have potentially long shelf lives, and knowing that none of us makes perfect decisions 100% of the time, where do we aim to be?